Self Referrals in Health Systems Challenged

Hospitals with their own home health agencies could face some new pressure. Most home health agencies have experienced an issue with receiving quality referrals at one time or another. For some agencies, the only time a hospital referral is received is when the hospital’s agency can’t handle the demands of the patient or the hospital doesn’t have enough staff. Whatever the case may be, hospitals with their own agencies definitely get first dibs on the “good referrals”. You don’t need to have hard data on that fact – it’s just the way it has always been since most patients don’t think about home health until the need arises and time is of the essence to have help at home. Since this is usually following an inpatient stay or outpatient procedure, it seems to make sense that they would rely on the recommendation of the hospital staff reviewing the discharge plan.

An agency that decided it had enough of the local hospital referring patients to its own agency rather than those within the community is challenging that hospital.

American Home Health Services in Indiana filed suit against Floyd Memorial Hospital and Health Services on March 5, 2018. American Home Health is basing its suit of monopolization on two points. First, American Home Health states that the hospital is monopolizing referrals for its own agency. The second part of the monopolization claim is based on the essential facilities doctrine which is one organization creating a bottle neck in a market on purpose to deny any other competitors a chance.

The hospital and home health agency both provide services to the residents of six counties. As the leading medical provider of those 6 counties, American Home Health alleges that Floyd should be distributing more than 1% of all home health referrals to other agencies. The suit alleges that Floyd Hospital referred 64% of its Medicare referrals to its own agency. 30% of the referrals were referred to six other agencies that serve the counties while the remaining 6% were spread amongst other home health agencies in the area.

American Home Health is required to substantiate its monopolization claims with specific criteria. While most cases of monopolization do not make it very far, this agency has been able to persuade a judge with relevant, true facts. These facts support the allegation that the hospital is not offering patient choice, steering patients to its own agency and limiting agency staff that do not work for the hospital from visiting patients.

This case is bringing out many of the issues that smaller, locally owned home health agencies face. For many agencies not affiliated with a national group or with a hospital, the ability to obtain and attract good referrals from hospital discharge planners is all too common. What causes this?

Hospital owned agencies typically provide a list of area home health agencies to patients. However, most patients have no idea how to select an agency and therefore are steered into the direction of the hospital’s agency because it’s familiar and easier. This case between American Home Health and Floyd Hospital, however, is bringing this problem to light.

For an agency owner and administrator like you, this case could be pivotal and is very important to follow closely. What happens in Indiana could happen in your area and you could be one of the agencies that files such a suit. Many agencies we speak with regularly know that if a hospital has a home health agency, your agency is part of the “overflow” roster. Otherwise, you will only get the patients that have poor insurance coverage, very costly or demanding needs, or who live far out in the distant reaches of the hospital’s service area.

Should this case make its way into litigation and get picked up by the media, you can expect more home health agencies to begin joining the fight against their local hospital. While this isn’t a unique case or an unusual circumstance, this is the first noted case in which a home health agency has been successful at breaching the firewall of a hospital owned agency’s monopoly on referrals. While this case is still in its infancy, the simple fact that such a suit has been allowed to continue is a major step in the right direction.

In a situation similar to this, agencies might need to turn foes to friends. The ability to have more than one agency take on a big hospital system for a similar claim of monopolization could go quite far in other areas besides Indiana.

CMS is likely watching this case closely as well. The Inspector General will likely perform an audit of the hospital to see if it was indeed violating self-referral statutes and putting its own financial concerns ahead of the needs of their patients.

We will be keeping you posted on this developing litigation.

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